Smart Tax Tips – black holes

Q: What does outer space have in common with income tax?

A: Black holes!

Expenditure is said to be ‘black hole’ when it is not only not deductible for tax purposes but is also not considered to be expenditure on a depreciable asset and can’t therefore be depreciated over time.

The Budget 2014 announced some important changes which are part of the government’s focus to encourage R&D spending (by removing the disincentives that exist at present).

The new measures include:

  • Capital expenditure relating to an invention that is the subject of a patent application;
  • Capital expenditure relating to registered designs. If the design application is successful the expenditure becomes depreciation. If the application is abandoned the full cost can be expensed;
  • Capital expenditure relating to copyright of an artistic work where that work is intended to be produced commercially (as defined by legislation).  The capital expenditure in creating the work can be included as part of the depreciable costs of the copyright.
  • Capital expenditure relating to successful software development.


The most important feature is a one-off tax deduction for capital expenditure where an intellectual property asset is written off. For example, the development costs of an abandoned software proposal could be written off as an expense.

These measures will mainly take effect from 1 April 2015.

This is in addition to the changes introduced in the 2013 budget:

  • Making certain fixed-life resource consents granted under the Resource Management Act 1991 depreciable for tax purposes.
  • Making expenditure immediately tax deductible if it is incurred on resource consent applications that are abandoned, rather than requiring the application to be lodged in order to be tax deductible.
  • Immediate deductibility for all direct costs associated with the payment of dividends by a company to shareholders.
  • Immediate deductibility on annual fees for listing on a stock exchange, while clarifying that the initial costs of listing on a stock exchange and the costs of additional share issues are not tax deductible.


For tax advice contact John 09 630 6544 or 027 527 4925 or email [email protected].

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